India: Steel, raw material prices move in narrow range in Oct amid weak demand

• Production drop in Australia fuels coking coal price rise by 7% m-o-m
• Metallics dip amid subdued finished steel demand, liquidity crunch
• Going forward, raw material costs may show mixed trend  

Morning Brief: Steel and input material prices moved in a narrow range in October. Coking coal slightly bucked the trend, rising 7% m-o-m. Subdued finished steel sales kept most raw material prices muted in October which was also a festive month.

SteelMint goes behind the scene:

Coal 

• South African RB2: The bi-weekly index tracking the average portside ex-Gangavaram prices of the South African RB2 5500 NAR remained flat m-o-m in October, 2022 at INR 17,040/tonne (INR 17,000/t in September, 2022).

The flatness stemmed from the fact that demand was weak as most sponge iron manufacturers avoided taking positions during the festive season. Most DRI units in hubs like Raipur and eastern India remained closed because of the holidays. Sufficient inventory for around two months, a volatile currency exchange rate and easy availability of cheaper Russian coal made RB2 procurements slack. A sliding rupee has made imports costlier. DRI producers have also been increasingly blending low-CV RB3 with Russian and Australian Carmichael coal in a 60:40 ratio for price viability. With little scope for an increase in sponge iron prices amid a tepid demand scenario, manufacturers are dragging their feet on procuring imported RB2, mostly opting for small parcels.

• Australian low-vol HCC coking coal: Average prices of the Australian low-vol HCC, rose 7% m-o-m in October to $310/t against $290/t in September. The reason for the consistent price rise since the last two months lay in several factors constricting production that are leading to supply disruptions. One, is weather-related issues which have led to more than average rainfall in Australia, leading to flooding of mines. These include the La Nina and Indian Ocean Dipole weather phenomena.

Secondly, Australian miners’ production levels have fallen. Workers at its largest miner, BMA, (BHP-Mitsubishi Alliance) recently voted to strike work due to job-related issues, impacting production in the process.

BMA’s coking coal production over July-September was down 19% q-o-q, impacted by heavy rainfall and labour issues. Whitehaven’s output fell in this period 37% q-o-q and South 32’s by 8% q-o-q. Yancoal’s was down 25% y-o-y.

• SECL’s G9 (4750 GCV) auctions: South Eastern Coalfields (SECL) made a return to the auction fray in October, after a month’s gap.  However, weak buying sentiments, along with availability of adequate material on sale, pulled down bid prices of G9 coal which dropped to INR 7,084/t in October, 2022 as against 7,682/t in August, 2022.

Ferro alloys  

• Silico manganese 60:14: Prices of the bi-weekly 60:14 grade silico manganese index emerging out of Raipur rose 2% m-o-m to INR 75,900/t in October, 2022 against INR 74,310/t in September. The slight upturn occurred mainly on account of a few factors. First, the rise in demand for special steels and stainless steels pushed up prices. Secondly, prices of imported manganese ore rose owing to recovery in domestic demand. Thirdly, the rupee slide helped raise exporters’ margins. Lastly, higher coking coal prices also supported silico manganese prices.

Scraps and metallics

All showed a downtrend by 2% m-o-m.

• Pellet-based P-DRI: The pellet-based P-DRI, ex-Raipur, inched down 2% to INR 31,600/t in October, 2022 (compared to INR 32,310/t in September, 2022). Prices dropped amid an overall lack of buying interest amid the festive season and low demand for finished steel. The liquidity crunch added to lower offtakes.
• Steel grade pig iron: Pig iron prices also dropped 2% m-o-m in October to INR 44,140/t (INR 45,110/t in September). The 15% export duty is leading to inventory build-up in the domestic market, putting pressure on pig iron prices. Plus, arrival of import bookings and October was quiet in terms of demand.
• Domestic scrap: The domestic scrap (ex-Mumbai) index trended down by 2% to INR 38,800/t ($485/t) in October, 2022 against INR 39,590/t in September. The market is seeing considerable imports of cheaper bulk scrap from the US since Turkey has been less active in the ferrous scrap import market. Pakistan and Bangladesh are beset by liquidity issues, further allowing for entry of cheaper bulk material into India. Bulk prices averaged $410-415/t CFR India while container rates (UK-origin HMS 80:20) averaged $430/t CFR India. In dollar parity, domestic works out more expensive.

Steel

This segment, comprising billets and finished products, saw prices moving in a narrow range across the spectrum.

• Billets: The ex-Raipur billet index remained flat m-o-m at INR 47,580/t in October, 2022 (INR 47,660/t in September) amid sluggish finished steel sales due to the festive season and liquidity issues. Moreover, the slightly lower prices of raw materials like sponge iron, pig iron and scrap also supported billet’s downtrend.
• Rebar: The ex-Mumbai BF-grade upped a marginal 1% to INR 56,420/t (INR 55,940/t) in October. The IF grade rose 2% to INR 55,620/t (INR 54,780/t) while wire rods (ex-Durgapur), slid 1% to INR 50,830/t (INR 51,270/t) last month.

Long products recouped slightly amid expectations of resumption in construction. Some restocking by trade channels and projects encouraged mills to raise prices; although secondary sales were volatile through the month.

• HRC: Ex-Mumbai trade-level HRC prices rose 2% in October to touch INR 56,770/t from INR 56,240/t in September. A quick hike of around INR 1,000/t by the primary mills in early October helped HRC prices to edge up. But demand remained tepid which allowed prices to remain stable through the month.

Iron ore

This raw material, in terms of fines, lumps and the high-grade 63% pellets, showed a mixed trend.

• Fines, lumps and pellets: Fe62% fines from Odisha upped a marginal 3% to INR 3,560/t (INR 3,440/t) in October and the Fe63% lumps (Odisha) also inched up by 1% to INR 6,990/t (INR 6,900/t) in this month under review. Fe63% pellets (DAP Raipur) lost remained flat m-o-m at INR 8,150/t (INR 8,150/t).

As per sources, the shortage prevailing for high grade ore and increased bids on low inventory level with the plants pushed up prices of Odisha fines and lumps in October.

The monthly average domestic pellet index, PELLEX, remained almost stable m-o-m in October due to lack of demand and market uncertainty. Aggressive sales by a seller, targeting central and eastern India, led to a drop in bids from the buyers.

Short-term outlook 

Prices of raw materials are likely to show a mixed trend in the short to medium term. India may show a demand revival in the remaining part of the fiscal which would push up raw materials demand too.

Coking coal prices may sustain the uptrend amid constricted supply conditions from Australia. South African thermal coal may get diverted to Europe for winter heating amid sky-high natural gas prices. This could limit RB2 supply to India and also make it costlier. But Indian sponge players have found a way to get around the RB2 grade which might be factored in.

Global iron ore prices may decline in tandem with China’s production cuts and bleak global steel demand. But Indian mills’ demand may rise.

Cheaper imported scrap can keep domestic scrap prices under pressure, a factor that can ease IF-grade rebar prices.

Finished steel prices seem to have bottomed out and are not likely to see sharp falls from current levels. Flat steel and BF-grade rebar prices may stay supported by higher coking coal costs.